The stock market is a 'picker's nightmare' and returns among most asset classes in 2023 are following the path of recession, bear market

• The stock market is currently a "picker's nightmare," analysts at Ned Davis Research said.
• Strategists pointed to negative returns across most asset classes in the market.
• That has typically followed previous recessions and bear markets in stocks, the firm warned.

The stock market is currently a nightmare for portfolio managers — and it's following the path of previous recessions and bear market downturns, according to Ned Davis Research.

Poor performance across most asset classes in the market this year is a harbinger of tough times ahead, NDR said. Stocks and bonds both fell at least 10% for the first time ever this year, and median asset class returns are clocking in at -1.1% so far in 2023, strategists said in a note on Monday.

Median asset class returns have only been in the red 10 times over the last 51 years — and median returns have only been lower seven times over that time frame. Those instances typically preceded previous bear markets or recessions, including those taking place in the early 70s, the early 2000s, and in 2008, the firm noted.

"If one just looked at the S&P 500, their conclusion would be that 2023 is a much better year. The equity benchmark has rebounded 15.0% year-to-date. However, few other asset classes have come along for the ride, and the equity rally has been narrow," strategists said in a note on Monday.

That makes current market conditions a "stock picker's nightmare," the note added, as the rally in stocks have just been driven by a handful of names. Most of the S&P 500's gains this year lie in the Magnificent Seven mega-cap stocks, which have soared on Wall Street's enthusiasm for artificial intelligence. Meanwhile, just 33% of stocks have outperformed the S&P 500 over the last three months, well-below the long-run average of 50%, NDR said. 

Other Wall Street forecasters have raised flags over the narrow breadth in the market. The Magnificent Seven mega-cap names are likely overvalued, according to Richard Bernstein Advisors, which wrote earlier this month that it sees a once-in-a-generation investment opportunity as market leadership broadens out and gains become more evenly distributed across the rest of the S&P 500.